When putting together your estate plan it is extremely important that you consult an experienced estate planning attorney that knows the law and can advise you properly. If your estate plan is based on hearsay, you could be making some significant mistakes.
There are a number of common myths concerning estate plans, and if you base your plan on these myths, it could cost you and your beneficiaries.
- With a will your estate plan won’t have to go through probate. This simply isn’t true, though a number of people believe that as long as they have a will their estate will pass to their heirs without having to go through probate. A will is a legal document that gives instructions on who receives your estate and how you would like your estate distributed to your beneficiaries. If you do happen to have any assets in your name that you have not designated a beneficiary for, these assets will go into probate. Basically, what will decide if your estate goes into probate is not if you have a will, but how your assets are owned. Here’s the rule: only assets titled in one person’s name go through probate. Your estate will not go through probate if all of your assets are jointly owned with the other owner having right of survivorship, or if you have been careful to designate a beneficiary for all of your assets.
- Myths about the gift tax. It is commonly believed that you can give at least $10,000 to as many people as you want each year, and there will not be a gift tax. Though this is technically true, the amount is wrong. In 2010 you can give $13,000 to as many people as you want each year without having to pay a gift tax. This is called the Annual Gift Exclusion. If the amount for any one person exceeds this amount, it is then necessary to file a federal gift tax return on the gift. It is also important to note that you cannot exceed more than $1 million of gifts during your lifetime without being liable for gift taxes. When all of your lifetime gifts above those allowed for the annual gift exclusion exceed $1 million you will owe the IRS gift taxes.
- Giving away assets to qualify for Medicaid. Another common myth is that if you need to go into a nursing home you can just give away your assets and still qualify for Medicaid to cover the cost. The cost of a nursing home can be high; in fact, you’ll probably have to pay thousands of dollars a month. It is common for someone to want to quality for Medicaid to help pay for these costs, but there are some strict limits to assets when qualifying for Medicaid. If you were to give away your assets, you will not be able to qualify for Medicaid for a period of five years after you gave those assets away.
- Medicare will pay for a nursing facility. This is only partially true; there are some cases where Medicare will pay for a nursing home stay, but only under certain circumstances, and they will only cover 100% of the cost for the first 20 days. After the first 20 days they will cover only 80%. Medicare covers no nursing home expense after 100 days.
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